Category: Health insurance
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An insightful analysis in the Journal of the American Medical Association and the World Health Organization shows how far we are behind in Heartland medical care. A comparison of life expectancies in many of our Heartland states are as poor as many war torn or developing countries in pairings like, Mississippi – Libya, Tennessee – Gaza Strip, in a similar range as Libya and Gaza fall Kentucky, West Virginia, Arkansas, Louisiana, and Alabama.

Many of these states in the South and Midwest have the highest rates of cancer, diabetes, and opioid use in the U.S. As globalization took many factory jobs away from the Heartland, medical service providers, doctors and other health professionals left for cities or the coasts where they had transferable skills and could make a better income. Plus, the number of rural hospital closures has been accelerating in the past 8 years with 120 going out of business since 2005. Researchers at the University of North Carolina who led the study believe the trend in more closings will continue to accelerate as costs go up, people move out and businesses are financially challenged. Good health is often found where there are good incomes and healthy businesses.

We noted in our blog of March 25th that:

“Personal Income growth rates in heartland regions continue to lag the coasts by 3.8 to 2.0 % comparing income growth from 2016 to 2017. The following chart from the US Bureau of Economic Analysis shows how large the gap is:”

“Core issues for the lack of growth are young people moving out, industrial companies leaving for non-union states or moving factories overseas, automation, poor health, slow Internet speeds and fewer education opportunities. Added to these issues which have trended in these ways over the past 20 years are now tariffs on imports with soybean farmers threatened in the Midwest with a possible loss of $624 million where they already are competing with lower price soybean products from Brazil.”

As the Trump Trade War heats up prices of many Heartland agriculture crops have been falling such as soybeans by 2.20 % and corn by .62 % today alone. As prices and foreign customers find other suppliers Midwest and South farmers will find their customers have moved onto other countries hurting sales.

The situation is in a downward spiral, as federal tariff and trade policies don’t help in turning around the economic, health and educational opportunities for these mostly rural regions.

Next Steps:

Our heartland neighbors continue to feel under siege from many different directions. We discuss these issues in our blog – The Hallowing Out of America’s Heartland. We recommend that a major set of investments be made with the federal government providing seed funding for a partnership between non-government organizations, health services providers, universities, corporations and state and local government. To bring focus to the development process we propose that Heartland Development Centers (HDCs) be located in key regions maybe near a major university – land grant universities are good candidates located in rural communities. Experts from across the country in HDCs would join together with local leaders in customizing solutions to build entrepreneurship centers, high quality health services, high speed Internet services, job and career training and other services necessary to renew the economic vitality of these regions.

The Administration last week announced a series of proposals to reduce the price of medicines for seniors and the general patient population. The policy initiatives include: review ways to speed generic drugs to market, placing trade restraints on countries until they pay their fair share of a drug’s costs, lowering out of pocket expenses for patients, require drug companies on TV ads to list the price of the drug advertised, updates to a Medicare drug pricing monitoring tool, and not until 2020 more transparency on drug list prices to consumers, drug rebates from manufacturers will be passed through to consumers, considering a requirement that middlemen like pharmacy benefit managers act in a fiduciary role for clients (consumers), and a report on how to use the Medicare Part D (drug) plan to negotiate for services Medicare Part B (services).

When investors and drug and biotech companies saw how vague the plan was, and the fact it did not give Medicare the right to negotiate prices stock prices went up after the 11 am announcement:

Sources: Money.net, Axios – 5/11/18

Today, biotech stocks were up another 1.0 % and health insurers Aetna and United Healthcare saw stock price moves up almost 2.0 %.

POTUS promised repeatedly during his 2016 campaign that drug companies were ‘getting away with murder’ on pricing. He even promised to Rep. Elijah E. Cummings (D- Maryland) in March of 2017 that he would seek Medicare authorization for drug price negotiations. He did not provide for direct negotiation by Medicare in this set of proposals, basically selling out the American people to the drug and biotech industries.

Next Steps:

“Until we get closer to policy solutions that address the ability of drug manufacturers to set whatever price they want and increase prices year after year, we may only be scratching the surface of this problem.” — Juliette Cubanski, a health-care expert with the Kaiser Family Foundation.

Ms. Cubanski perfectly outlines the problem; drug company pricing power is out of control, shows not restraint and little regard for the common good. Drug companies are making money off of people that are sick or dying. They have a social responsibility for the common good of all people to ensure their drugs are safe and offered at the lowest possible price. We have proposed previously and continue to believe that just showing list prices for advertised drugs is not enough – prescription drug advertising on TV should be banned as it is in all countries of the world except New Zealand. Banning advertising would give the drug companies at least $ 1 Billion per year they could put into research and development or to cut the cost of drugs. The pharma industry is one of the worst offenders in manipulating stock prices in a misleading way, and juicing executive compensation with stock buy backs. Companies like Amgen and Abbvie plan to buy back shares totaling $20 billion in 2018 which could be better used to lower prices or increase productivity, if the whole industry is considered it is over $50 billion.

Source: Company filings, Axios 5/11/18

Stock buy backs can be banned by an SEC policy change and do not require Congressional approval it should be done now covering all health industry companies not just pharma companies.

We are pleased to see the Administration moving on stock rebate discounts going directly to consumers as we have noted in the past. Yet, these proposals are so vague, are missing timelines and will need to be supported by officials in the Health and Human Services organization whose Director came from Eli Lilly. What we think will really happen is these proposals will be used as PR pieces to the voters for the mid-term elections while industry lobbyists water down the key provisions in back rooms. Certainly, the drug companies and investors see nothing to be concerned in the POTUS plan – so if it doesn’t hurt their valuation then these policies may be really don’t really have any bite. We want our drug industry to be profitable and thriving but at the same time it needs to take social responsibility for its products. Since the industry can’t seem to focus on a fair profits for its products, our government needs to bring these companies into alignment on the common good for all the people.

So of the 41 % not working who is going to work? The Administration said those that are disabled, ill, in school or caregiving will not be required to work or provide community service. Does that mean that those that are retired will be required to find work? Only 8 % said they could not find work. We view this as the beginning of an effort to cut down the rolls and thus the costs of Medicaid. Instead of being viewed as a welfare program, Medicaid should be viewed as medical insurance. We don’t ask Medicare enrollees to work, and private insurers don’t ask for patients to work.

Next Steps:

Enroll US citizens into healthcare insurance at the time of birth (our blog in depth), establishing a healthcare account with Medicare for all. The idea of insurance is that we establish a large pool of 360 million people, to spread the costs of the sick along with the well, so that when the well get sick they will have services that don’t cost an unreasonable amount. The health insurers have somehow talked the American public into the idea that they get to cream off the well pool from the sick one (which is more expensive) and then sock it to people that are sick. That is just plan wrong.

(Editor Note: The following blog is the result of a completed in depth research project into multi-dimensional problems facing our Heartland and we developed an innovative renewing sustainable solution. References are in the Research tab under this blog name, please right click on the charts to see them larger in a separate browser tab.)

The View:

Rural and inland regions in the Heartland have been left out of the robust growth centered mainly in coastal regions. The Heartland of America has been falling behind in education, entrepreneurship, health, housing, mobility digital infrastructure for the past 20 years. The rebuilding of these key regions is a multi-dimensional problem requiring a major investment similar in scale to the Marshall Plan after WWII. Yet with a different funding approach – building a startup non-government organization. We are recommending a difference approach by the Federal government to act as an investor in a non-government organization called a Heartland Development Center. An HDC acts as a central hub of critical services and infrastructure development while providing a continuous innovation system. The Heartland Development Center acts as a catalyst creating an innovation ecosystem to jumpstart local economics and social structures. HDCs would focus on all the key issues that a region needs to address to rebuild their economy and people’s lives: business formation, education and training, digital infrastructure, affordable housing, engaged local innovation media and health care. The Federal government would seed the financing of these NGOs in key regions with additional funding from local and state governments, and major corporations who would benefit from the newly available job force tuned to their needs. HDCs would be ‘startup’ organizations bringing in leaders in their respective fields – ie. business formation – Y Incubator, preventive health – Cleveland Clinic, or training – Opportunity@Work as contractors to the HDC. These NGOs would establish continuously renewing innovation processes to stay in touch with their citizen – customers and businesses. Administration services would all be contracted using cloud software services for HR, Payroll, Training, Benefits and other internal systems to keep costs down. The HDC startups would be piloted in 3 non metro areas, where they would tune their business and socio economic models for maximum impact, then use those working models to implement HDCs in 25 or more other key regions for 5 – 10 years.

The Story:

The Heartland of America been spiraling downward in terms of education, entrepreneurship, health, housing, mobility, digital infrastructure and jobs for over 20 years. All of these factors combine to create sub-nation apart from coastal and metro prosperity. Jobs programs in rural areas will not be enough to bring these regions to a tipping point in socio-economic growth. Other factors create huge challenges: the opioid epidemic has hard hit heartland communities where for example. some Ohio machine shop employers find 50 % of their job applicants for machinist jobs test positive for drugs. The Heartland is where: (1) mobility to take new jobs is the lowest in rural and small cities in the Midwest and South (2) there is the highest concentration of young people without a 4-year degree (3) the lowest concentration of entrepreneurs is holding back business formation and development to create new higher paying jobs with a future (4) the largest number of people without health insurance are found in the South and rural areas of the Southwest and West (5) slow speed Internet connections are the norm leaving many heartland regions way behind in the digital revolution where new jobs, opportunities for education and quality health are being developed and accessed (6) accounting for births, deaths and migration rural population has declined for five consecutive years. It is deplorable that a complete socio-economic region of the country has so many factors that have not been addressed to extent necessary to transform people’s lives toward good health and fair share of prosperity.

Rural and small town America enjoyed a renaissance of increasing jobs and prosperity into the mid 1990s. During this time rural counties were home to more than one-third of all net new businesses establishments fueling the job creation engine. Yet, in the past ten years the economic conditions have changed dramatically, leaving these regions out of robust growth in coastal areas since the Great Recession.

Employment

Rural or Non Metro areas have not regained the same level of employment as pre-2008 recession levels:

Non Metro areas lost more jobs as a percentage of the labor force than Metro areas did during the recession and has not caught up. Non Metro employment was estimated to be 20.684M jobs in the 1st quarter of 2007 versus the 2nd quarter of 2016 with 20.091M jobs a 2.9% reduction or a loss of almost 600k jobs. While Metro areas during the same period exceeded recession employment levels by 4.8%. At least 50 % of the Non Metro deficit relative to Metro areas was due to zero population growth between 2010 and 2013. This factor was partially offset by an increase in hiring in the oil and gas industry when gas prices were high and fracking exploration was exploding in Midwest oil fields.

The distribution of industry sectors hurt Non Metro employment as the number of manufacturing jobs fell 20 % from 2001 to 2015. Non Metro areas were severely impacted as they had nearly twice the number of manufacturing jobs as a percentage of total employment versus Metro areas.

Non Metro areas exceed Metro employment in sectors like Farming and Mining, Forestry and Fishing, Construction is about even with Trade, Transportation and Utilities is comparable. Yet, in Services, the fastest growing sector of the economy, Metro areas have a 16 % employment advantage over Non Metro areas.

Manufacturing companies concentrated in rural counties and near metro areas have increased employment by about 5 % in the last 6 years. However, due to automation far fewer workers are needed to increase output up to 20 %:

The ability of companies to dramatically increase output with fewer workers translates into fewer job opportunities for factory workers many without college degrees needed for knowledge management based work.

Other factors need to be addressed – like ensuring that workers even when trained are not in such despair that they are taking drugs. Or when on the job, their illnesses can be dealt with quickly and return to work immediately.

Health

Rural health providers face a daunting set of challenges in providing healthcare to a declining population, with high unemployment rates, reduced insurance coverage and limited access to broadband Internet for treatment information and patient records.

Unfortunately, many Non Metro regions have limited or no insurance coverage, some have decided not to accept Medicaid help from the federal government – ie Texas. These no-coverage policies for many of the working class and poor mean that their health care is drastically reduced as shown in the charts above.

Sources: The Kaiser Family Foundation – 2016

The Affordable Care Act or Obamacare helped to reduce the total number of uninsured people from about 14 % total to about 9.2 %. However, as noted in the chart below for insurance plans under the ACA for 2018 many areas in the South and Southwest, and rural western states have only one insurer or some have none.

Source: Robert Wood Johnson Foundation – 6/6/2017

One major issue for health care providers and business leaders interested in bringing in new businesses is high speed Internet access and the lack of a digital infrastructure.

Internet

University of Texas researchers found in a study of rural communications in Oklahoma, Texas and Mississippi that rural household incomes went up and unemployment rates dropped in rural counties where broad band internet was installed.

The number of rural households connected to the Internet is directly proportional to Internet speed. As this graph shows Internet subscriptions per 1000 households by county where metro areas like St. Louis dense household connectivity vs a rural town like Caledonia, MO.

Sources: FCC, Broadband Now, The Wall Street Journal – 6/15/17

The FCC defines fast speed Internet as 25 Mbps about 39 % rural households in the US or 23 million people lack access to broadband Internet service. Only 4 % of of urban – metro households do not have high speed access.

A major challenge is that a city like St. Louis has 5,000 people per square mile compared to rural counties like Washington where Caledonia is located with 33 per square mile. Installation of fiber optic trunk lines cost about $30,000 per mile including access rights – so population density is crucial to meet financial targets for providers.

Broadband Internet access is like electricity was in the past – in 1935 only 10 % of rural America had electricity. President Franklin D. Roosevelt drove an initiative to connect every rural household to electric power and two decades later 90 % of all rural households have electricity.

Entrepreneurship

Rural communities once thrived in starting new businesses, however today the percentage of startups in rural areas has dropped from 20 % in the 1980s to 12.2 % in the 2010s.

Source: The Kaufmann Foundation – 2016

There are gaps between the largely white young entrepreneur often thought of in starting a Silicon Valley startup compared to a minority entrepreneur. Experts estimate that if minorities started and owned businesses at the same rate as whites that there would be over 1 million more new businesses creating an extra 9.5 million jobs.

Education impacts the propensity of young people to start businesses. Rural areas have a lower percentage of college graduates than metro areas. Adults without a college degree make up 11.6 % of the population but only 3.4 % of entrepreneurs.

Mobility

Americans have been always willing to move to ‘greener pastures’ for a new career or business opportunity, as evidenced in the Dust Bowl days of the 1930s and the migration to California, or the movement of southern African-Americans to northern states like Michigan for jobs in auto manufacturing after WWII.

Yet today that attitude and confidence is fast draining away, into a sense of not ‘fitting in’ for rural community members moving to a metro area or even small cities surrounding metro areas.

Mobility is at its lowest level on record since records were first kept after WWII, dropping by 50 % since a peak in 1985. After WWII about 20 % of Americans reported moving in the last year, that figure has now fallen to 12 %, a 40 % decline.

Source: Census Bureau, The Wall Street Journal – 8/2/17

There are three aspects related to reluctance to move: culture, housing, and education. On a cultural basis in many rural regions people are devout in their religion who don’t feel when they talk with ‘coastal people’ they are not appreciated, understood and end up being ridiculed for their values. In housing, over the last 8 years since the recession in metro areas restrictive zoning laws have reduced the availability of housing driving prices way up. Yet in rural areas housing prices are just now getting even with pre-recession levels. For a school custodian in a rural area, without a college degree a job in a metro area may pay 50 % more but housing could be 3 or 4 times more expensive. For those with college degrees, in a profession like an attorney can move from a rural area and handle the increase in housing costs due to a much higher salary ratio to housing costs, based on recent research. Finally, lack of education prevents young adults from taking jobs in higher paying metro areas where the knowledge economy requires a 4-year degree and in many cases an advanced degree.

Another issue is the possible ‘brain drain’ of losing young people to larger cities and where they stay. The small town loses the talents and innovation of its bright ambitious younger people. Investments in Non Metro areas need to offer both incentives for movement across county lines but opportunities that are created locally to build the local economy.

Education

Rural areas have endured lower education rates than urban areas. For example, rural areas achieved a higher rate of bachelor’s degrees from 2000 to 2015 but they still are 73 % lower than the bachelor’s degree rates of urban areas. Rural residents often have to travel further for college studies and of those schools serving these areas they have experienced continuous cutbacks due to regional economic downturns.

Sources: USDA, Census Bureau – 2016

There is a direct relationship between education attainment and earnings – yet here again rural residents are earning much less than urban residents by 25 % for bachelor’s degrees.

Sources USDA – Economic Research Service, Census Bureau – 2016

While rural job holders with 4 year degrees experienced higher demand for their skills they were still behind urban residents – largely due to lack of local employment prospects.

While there is a high rate of poor attainment of high school diplomas in inner cities, the problem is larger in rural areas. Of adults without a high school diploma 4 out of 5 are in located in rural areas.

Sources: USDA – Economic Research Service, Census Bureau – 2014

Rural areas hardest hit by unemployment are also those with the highest percentage of non-high school graduates in the South, East Central mountains and along the Mexican border.

The Solution:

The Rural Socio – Economic Crisis – Calls for Major Investment Now!

There is a major reason for the civil conflict we see today across America – it is the hallowing out of America’s heartland. Rural areas have been hardest by globalization, automation, fewer new business formations, lack of education opportunities, poor digital infrastructure, inadequate or non-existent health services and economic loss since the Great Recession leading to limited mobility to obtain better jobs or education.

A dedicated non-government organization (NGO) for centralizing multi-dimensional development in the heartland needs to be created, a Heartland Development Center (HDC). An HDC acts as a central hub of critical services and infrastructure development while providing a continuous innovation system. The Heartland Development Center acts as a catalyst creating an innovation ecosystem to jumpstart local economics and social structures. HDCs would focus on all the key issues that a region needs to address to rebuild their economy and people’s lives: business formation, education and training, digital infrastructure, affordable housing, engaged local innovation media and health care. The federal government would provide ‘seed’ funding with major funding from state, local and city government and major corporations who would benefit from the new available job force. HDCs would be ‘startup’ organizations bringing in leaders in their respective fields – ie. business formation – Y Incubator, or preventive health – Cleveland Clinic as contractors to the HDC. Administration services would all be contracted using cloud software services for HR, Payroll, Training, Benefits and other internal systems to keep costs down.

Training and Employment

To plug the skills gap in rural areas initiatives like the Opportunity@Work program are one solution. The training group started in the Obama White House focuses on providing Internet economy job training to workers in the heartland to gain digital skills for jobs in fields like programming and information technology.

Designing, developing and deploying focused apprenticeship programs for the Heartland is crucial to building a robust regional economy. Colorado has invested in its CareerWise to bring businesses, colleges and vocational training groups into partnerships providing all Colorado high school juniors and seniors with a dual career path leading to a community college associates degree plus key skills. Students can begin working on the factory floor as juniors learning key company job skills, and are guaranteed full time employment at the end of their apprenticeship along with financial support to earn a community college degree. This type of program provides a good template on how to implement a Heartland program.

However, an HDC goal to create over 1 million jobs in rural communities within 5 years will require significant investments by major corporations, foundations, Federal, State and Local government and universities to turn the present situation around.

In manufacturing, partnering with the ARM Institute (Advanced Robotics in Manufacturing Institute) is an alternative where ARM focuses on developing robotic solutions with partner companies and developing worker skills in robotics. Automation is growing fast in manufacturing, so US workers need to learn robotics management, support, and collaborative work to be competitive in the world manufacturing marketplace.

Major high technology companies like Apple, Amazon, Facebook have business development departments planning today where they will be locating manufacturing sites, customer support centers and other services. HDC leaders need to be developing relationships with fast growing companies to understand their business needs and ensure they are developing the local economies, infrastructure and workforce these companies need.

Entrepreneurship

The majority of new jobs come from new businesses, yet new business formations in Non – Metro areas are half of the rate in Metro areas. Contracting with experts like the Y-Incubator in Mountain View, who has invested in over 1450 companies with a combined market capitalization of over $80b capitalization. They provide programs for non-profits and profit making organizations and a network of consultants on business fundamentals in legal, logistics, manufacturing, services, finance, and marketing to help startups.

The Kaufmann Foundation provides resources for entrepreneurs to learn business formation skills and development. They setup entrepreneur and investor networks and complete research on the needs of entrepreneurs and the status of entrepreneurship in the US.

Digital Infrastructure

Similar to the Rural Electrification project of the 1930s, the heartland needs to have its digital infrastructure upgraded to full broadband Internet service of at least 25 Mbps and ideally up to 100 Mbps to all households. Google has been setting up mega bandwidth sites in areas like Utah and the SF Bay Area, possibly a program could be setup with them to target rural communities across the country. In Rural Electrification, the federal government lent funds to local cooperatives of local merchants or farms could be setup as an alternative in areas where local telecom cooperatives have already been established. A possible successful model is in central Missouri, where The Co-Mo Electric Cooperative, Inc. installed a fiber optic network to over 25,000 subscribers. The service has reached out to another 15,000 subscribers who are non-members in neighboring communities. Co-Mo funded their program with a $100 from each member upfront with 100 Mbps service costing $49.95 per subscriber per month. The FCC needs to ensure that all providers not just phone companies can participate and offer Internet access.

Healthcare

Rural regions have some of the highest rates of drug overdose, obesity and cancer and other diseases in the country. To support the economic development and job training programs to lift the region, healthcare services need to be upgraded and offered at reasonable rates to people. The Cleveland Clinic has a start-of-the-art illness prevention and wellness program they have implemented for their own employees that has saved them tens of millions of dollars per year. Contracting with leaders like the Cleveland Clinic to setup innovative health services programs partnering with local providers would be a way to jumpstart the upgrade process for health services in these regions.

Local Feedback, Communication to HDCs

One aspect of a major development program like the Heartland Development Center project is to keep renewing itself and gain continuous feedback on how effective its programs are with its clients – the people in the region. A non-profit, Spaceship Media, in cooperation with the Bay Area News Group and other media groups has deployed on the Internet ‘conversation experiences’ with local people over Facebook and other social media to connect people with each other to discuss issues and possible solutions. Similar groups can be implemented by HDCs as focus groups to ensure they are receiving continuous feedback to tune their programs or make major changes as needed. Teamed up with incubators, local business groups and universities a continuous innovation process can be implemented to constantly support HDCs to reinvent themselves and stay on track in meeting the needs of local people.

The Health and Human Services administration just announced that the average premium for patients on the health insurance exchanges will increase by 25 % in 2017. For those covered in employee insurance plans they are being squeezed between stagnant wages and increasing premiums and high deductibles. The health insurers have a business model that creates profits for them, but creates gaps in coverage (as when a worker is unemployed) with high premiums and high deductibles. Insurers spend billions of dollars on stock buybacks to drive share prices up to increase executive stock compensation. Plus, they spend millions on lobbying Congress to keep their business model in place. These monies could be better spent bringing costs down and reducing premiums. In the final analysis as a country, we don’t need two accounts payable departments – private and Medicare. Let’s move to one single payer system, though it may take years to implement. The Action: Cover the remaining 9 million uninsured with a public option on exchanges, end state by state plans and replace them with a national insurance pool of 360 million, create individual health accounts funded by payroll deductions from salaries for workers and for the uninsured federal basic health and drug insurance would be offered, end COBRA accounts by implementing national health insurance accounts available regardless of employment status, transition employer plans over to health accounts over a 4 year period similar to 401k rollovers into IRA accounts, end penalties for not having health insurance, use the Medicare drug formulary for the industry, end stock buy backs, require full disclosure on health and drug pricing. To implement and guide development of the new health account program we should look at Affordable Care Act exchanges that work like California and those faced with challenges like Oregon. Plus, let’s enlist our progressive investor partners to build new health insurance business models and organizations necessary to make this transition successful.

The Story:

Last week, this author received in the mail a notice from his drug insurer announcing rates for 2017 – a 38 % increase in a standard medication because it was moved to a non-plan brand tier from a generic (it is still generic) and premium increase of 33 %! Recently, my wife made an inquiry about coverage for one her medications where the insurer said her medication was covered was covered but she would have to pay 100 % of the cost because of the tier it was on. What kind of double talks is this? Related to health care, prior to the Affordable Care Act my son couldn’t afford doctor visits because he didn’t have insurance – he would have to pay $150 for a visit instead of a $10 copay. Fortunately, he didn’t have much income so MediCal helped out. It seems that most families or someone you may know has had an issue with a health insurer. Yet, this business model for insurers stays in place. Insurers have designed an inequitable structure to ensure they make money, while those with no insurance or high deductibles are paying exorbitant fees.

How big is the problem with drug and health insurance? According to the Kaiser Family Foundation insurance costs are going up for those under employer sponsored plans too –29 percent of all workers were enrolled in high deductible plans up from 20 percent in 2014. From 2006 to 2016 workers incurred a 58 % increase in premiums for employer sponsored plans. (click on image to enlarge)

Under the Affordable Care Act (ACA) corporations can move insurance plan costs over to employees for their health insurance and not be penalized. High deductible plans can cause a barrier to care, because patients looking to reduce costs do not go to their doctor or purchase the medicine they need, resulting in more serious illnesses later. This means that while premium costs maybe held in check, high deductibles are dramatically increasing the costs to patients while middle class worker income has stagnated since the mid 1980s. Middle class workers and their families are caught in a wage – health cost squeeze, while drug and health care provider executives make 290 % of an average worker income. The Commonwealth Fund, reports that workers with employer plans spent an average of 6.5 % of their income in 2006 on premium fees and deductibles, this figure soared to 10.5 % by 2015. The squeeze between wages and health care costs is felt most acutely in those states with lower wages. For example, in Florida the average worker spent $16,000 in premiums and deductibles per year, in Massachusetts their health costs were $18,000. Yet, the median income in Florida was $43,401, versus $73,015 in Massachusetts – highlighting the huge squeeze felt in lower income states where wages have not kept up with health costs

Finally, the federal government reports that while another 1 million people will be covered by the public exchanges in 2017 due to the major insurers dropping out, average premiums will be raised by 25 %! For example, Aetna announced that it was dropping 11 states from its plans due to losses of $430M since January 2014. Aetna wants the game played by its rules. Last summer, Aetna told the DOJ that it would bow out of state exchanges if it did not approve their merger with Humana, Aetna also spent $1 billion in stock repurchases in 2014 and approximately $750 million in 2015. Anthem has announced that while it is not repurchasing stock now with its pending merger with Cigna, it still has authorized $4.7 billion dollars! Stock repurchases manipulate the stock price (to drive up price); they do not reduce costs, innovate new services, or compensate employees. In 2014, Humana repurchased $500 million in stock driving the price up by one cent over their earnings target of $7.50 per share entitling CEO Bruce Broussard to a $1.68 million bonus. Middle class workers are caught in squeeze as premiums rise while executives use billions of dollars to increase their compensation that could be used to reduce premium prices.

The success of the public insurance exchanges while contingent on insurer support requires strong state leadership. California supported the public exchange program where 92 % of patients can choose among three or more plans, with increases averaging 15 % for 2017. Most Covered California plan consumers receive premium assistance and qualify for subsidies. Other states like Texas, fought the public exchange plan, and did not accept $10 billion in subsidies over 10 years which left many low income Texans without coverage.

The ACA has been a success with 21 million people gaining coverage, while another 9 million remain uninsured, the lowest number on record. Yet, the pricing and coverage model is wholly inadequate for patients to hold premium costs down and health service providers to manage their businesses effectively while ensuring a high quality of health care.

So how does drug and health insurance work? Drug companies set a price then negotiate an agreement with the health insurer for different tiers of pricing generic (lowest), preferred brand and so forth. The top tier is usually completely uncovered. The insurers negotiate for rebates and discounts to drive patients to certain drugs that the drug manufacturer wants to increase sales, or where they have the highest profits margins. Drug prices increased by 12 % last year, however the insurers saw drug costs increasing by only 2.8%, according to IMS Health. The drug store submits a claim under your plan when you want a prescription filled, the price they submit is high, and not what they receive (it looks big to have the consumer think the insurer is paying the drug store a lot) there are rebates and discount lists, then there is the cost to the consumer as a member. Finally, the plan supposedly pays part of the net amount, but most drug plans make the net figure your out-of-pocket cost. The pricing structure is completely opaque to the patient.

Health provider costs are negotiated as well. On an Explanation of Benefits statement the patient sees the amount the service provider charges, which is not the price the insurer pays which is usually a much lower cost reimbursement. If the patient has no insurance the ‘retail price’ of the service provided is due from the patient. Often these retail costs fall on those patients least able to pay – those with low income or without insurance. Retail costs can be exorbitant for example, an MRI may cost the insurer $1000, while the provider retail cost to the uninsured patient is listed at $10,000. Incredibly, uninsured patients are forced to pay the most for the health services! There is an obvious message here – ‘we don’t care about uninsured patients and we are going to stick prices to them’. For most unemployed patients private plans and private plans on the public exchanges have high premiums, high out-of-pocket or high deductibles. This approach of high premiums, out of pocket and high deductibles don’t work for the consumer!

Insurers have worked hard to keep their business model in place with Congress, Aetna spent over 23 million dollars since 2010 lobbying Congress on legislation that impacted their business, according to the Center for Responsive Politics. Aetna employed 37 lobbyists, with 75 % enjoying a revolving door between government positions and lobbying on behalf of Aetna. The health insurance industry has spent over 61 million dollars in lobbying efforts between 2010 and 2016. These insurer lobbyists are not representing patients.

When the health insurers; Aetna, Cigna, Humana, Anthem threaten the DOJ with leaving the public exchanges and then leave as they did last month, they are clearly undermining the goals for the ACA. They were upset with DOJ for suing all four firms to stop their planned mergers. We need an attitude shift here, how can they make insurance work for all of us.

We have come a long way with the ACA and concessions by the insurers, but they continue to focus on the healthiest patients, increases in deductibles, increasing profits and maintaining high executive salaries. This is all at the cost of patients – all citizens have a right to good, high quality healthcare throughout their life.

The Action

The core need is to provide low cost effective health insurance for people, so when illness strikes patients receive high quality care and become healthy again. Why do we need multiple insurance payers – private and the federal government? If we were running a corporation we would not have two accounts payable departments? We need to transition to individual health accounts that stay with the patient regardless of employment status beginning at birth. Here are ideas on how this transition could work.

Complete Analysis of ACA – We need to learn from the public exchanges that work – California’s public exchange has been quite successful covering new patients, and keeping costs reasonable for low income patients. Yet, we also need to look at why those exchanges like Oregon are not working well and expensive. Let’s summarize the analysis and publish the results so we can build a consensus around the solution, extending what works and recommendations for changes.

Priority One Cover the 9 Million Uninsured – those not covered by insurance need insurance now, we need to figure out how to cover 100 % of our citizens immediately. Offering a public option on the exchanges for basic health services and drug coverage would be a good start.

End State by State Coverage – state pools not large enough to make insurance work for all. With 360 million people in the US we can make our health insurance pool work to reduce costs. Plus, legislation needs to be passed to reverse the Supreme Court decision to allow states to opt out of subsidies. For example, Texas opted out on $10 billion subsidies leaving many low income families without insurance or very high premiums they cannot afford. Interestingly, a few months ago I talked with a small business office manager in Texas, she complained that ACA was not working (her firm did not offer health insurance), for her hourly staff. Obviously, one reason is that Texas opted out of the subsidy program. Using a national pool would help to spread out the disparities between regions in terms of the rising cost of insurance versus stagnant wage increases.

Create Individual Health Accounts – funding can be setup via a payroll tax, accrued to a personal national health insurance account when working (if they don’t have employer options – to be transitioned later). For individuals or families below the regional poverty level they would pay no health payroll tax. For those individuals who are not contributing to their health account, the federal government would fund a basic health and drug account by progressive taxes on wealthy individuals over $250k and the increase taxes on corporate profits. Corporations can offset the increased tax, by offering lower cost insurance, medigap plans or encouraging their employees to move to the basic national health insurance program.

End COBRA – by setting up health accounts regardless of being employed, there is no need for COBRA plans. Otherwise, for those unemployed to continue coverage often they have to pay soaring COBRA premiums up to 400 % of their employed premium rate. For this author, two major illnesses occurred when I was unemployed, often with the stress of being unemployed is the time we need health insurance. COBRA is another example where health insurers are charging outrageous rates to those who need the insurance badly but can least afford it. For the unemployed they could rely on basic health coverage in their individual health account.

Transition Employer Plans – convert employer plans over 4 years into a national personal health care account. Rollovers can be accomplished in a similar way to 401K to IRA rollovers (without the penalty for early withdrawal). Ending employer programs will cut a layer of administration in benefits departments that more rightly belongs to the individual regardless of employment status.

End Penalties For No Insurance – we want to to tax behavior we don’t want and support or subsidize behavior we do want. All Americans who have Social Security numbers should be able to enroll in a personal health insurance account, if they do not have a employer sponsored program. Parents can apply for a SSN for their child to be covered. A public insurance option should be offered to all those families not in employer sponsored programs. The public option run by Medicare is a basic health insurance program run similar to basic Medicare for seniors with medigap plans to cover the other 80 % of coverage needed.

Use the Medicare Drug Formulary – we don’t need multiple formularies and tiers of drug coverage. Medicare already provides one formulary which should be used as the industry formulary. We need to empower Medicare to negotiate all drug prices and health procedures with providers with provision for regional differences on procedures. A critical medication list can be created by Medicare for life threatening (Epipens) or serious chronic conditions (diabetes) capped at 5% profit for drug manufacturers.

End Stock Buybacks by Insurers – insurers need to end stock manipulation and the waste of stock buybacks. Companies like Aetna have spent billions of dollars on stock buybacks which would go a long way to reducing premiums and costs to patients.

Pricing needs to be transparent – similar to a mortgage disclosure statement. The explanation of benefits and drug claim form needs to be clear about the provider or drug price, any discounts and rebates, the price the insurer is paying, the price the provider is actually requiring, the price the pharmacy is paying and the exact out of pocket cost to the patient, with patient accruals in out of pocket and co pays toward insurance coverage.

Do it Without Waiting – let’s get progressive investors to back drug manufacturers that adhere to drug cost reasonable, critical med list, transparent pricing innovative insurance, publicize get more investors on board. Work with Wall Street to setup an ETF stock to focus on companies adhering to the progressive national health programs demonstrating good returns.

Awareness of What Works – A media campaign with surrogates, leadership in Congress, interest groups like the AMA, and the insurers to bring the American people along on the solution journey and to put pressure on Congress to pass the necessary legislation.

Health insurers would focus on medigap plans, taking risk out of innovative drugs to help speed them to market, vision and integrative medicine, personalized medicine, telemedicine – taking their layer out with reduce costs dramatically. They can be contractors to Medicare for transition to health accts. Or insurers can be contract administrators to Medicare, keeping costs low and utilizing their expertise.

Lets establish a lifetime health insurance program that provides good quality care, and low cost medications for all Americans.

(Editor Note: References for this article appear in the Research section of this site.)